When buying a house and land package you can buy direct from retail display village located in all master planned communities. The alternative is to buy directly from a builder or a property investment specialist also know as wholesale buying.
What are the differences between these and what are the pros and cons of each? Let us explain.
The best way to explain the difference is to take you through an experience I had at a retail display village north of Brisbane QLD. Retail display villages are set out in a nice neat row with builders displaying the best of the best with large facades and eye catching signage to capture your attention and get you in the door where one of their salespeople will take you through the process.
I was already armed with a house and land package provided by a property investment specialist so I walked into one of the displays that caught my eye. The sign read "houses from $129,950".
"WOW", I thought. This is going to be good. The price I had was $240,000 for a 200m2 4 bedroom house that was to be built on a lot within the same estate.
I asked the salesperson what the $129,990 price would buy me.
"A 3 bedroom, 130m2 house." she responded.
What have I got myself into I thought to myself. I wasn't even sure you would be allowed to build a house that small in a premium estate like this one. Hmmmm...
The conversation continued for about 30 minutes and the following occurred:
Q: Can I build a house that small?
A: No. We have a 3 bedroom house you could build in the estate. That is $180,000.
Q: I am after a 4 bedroom home
A: We could add an extra room to that design pretty easily which would increase the price to $190,000.
OK that's good. Well less than the $240,000 I was given.
Q: Is there was anything not included in the price? I am after a fixed price with everything included.
A: Well, you need to pay a $3,000 non-refundable deposit first. Then when the results are complete in 3 weeks we will get you back in to discuss the final pricing.
Righto... it appeared that there was no way I was going to get a straight answer here. Probably OK if I did not really have a fixed budget.
Q: So assuming I have the results from the soil and contour tests. What's next?
A: We then finalise the site preparation costs, discuss whether you need retaining walls and choose an inclusions package which includes your driveway, landscaping, flooring, white goods and tap ware. The basic package starts from $35,000. You also need to choose a lighting package which starts at $9,990.
So my price is now up to $235,000 but I have had to wait three weeks and have shelled out $3,000 which makes me committed somewhat. If I proceed the $3,000 will go towards my deposit.
This is where the fun starts. The salesperson now pulls out a brochure which shows me all the upgrades which total well over $80,000. The average person selects $25,000 of extras which range from feature tiled walls, pergolas, decking, larger patios, sliding external doors and so on which is almost impossible to say no to given that the display hoe has all these features and they are all add ons to the base price.
What became very clear from this process is that it is designed for people who are looking to customise a home to live in. At first it seemed a little deceptive however if you can afford to customise your home this would be a good process. You get to see all the different features and finishes before choosing them and there are a range of builders you can compare to shop around and get the best deal.
If your outcome to to build an investment property however this would be a disaster. When building an investment property you need to know what your total cost is going to be upfront so you can assess your gross yield, cashflow before and after tax and to do this you need a fixed price build contract with everything included. To achieve this you need to buy from a wholesale builder directly or better still a property investment specialist who has relationships with a range of wholesale builders in different regions and estates to give you a wider choice.
Wholesale builders don't employ their own salespeople or pay for display homes in land estates and therefore have lower overheads that allow them to pay a property investment specialist a sales commission to sell their packages for them.
When looking for a new home make sure you go down the right path depending on whether you are going to live in it or rent it out. Go through the wrong channel and you will more than likely have a bad experience.